438 THE IRON INDUSTKY.
(9) This item of depreciation is often represented on the cost sheets by new equipment and machinery, but sometimes these are erroneously or falsely put into the capitalization account. Whether ten per cent, is or is not the correct figure for a steel plant, it is quite certain that a very considerable amount must be included in the true cost of manufacture.
Assuming that the plant cost ten million dollars, a depreciation of ten per cent, is equal to one million annually; and if the production during the year is five hundred thousand tons, then this charge amounts to two dollars on every ton of steel made. It may be more in some works and may be less in others.
(10) When business is slack it is necessary that the manufacturer ignore this item altogether, for he will assuredly operate his plant if he can cover his actual running expenses. If, therefore, he does not earn his depreciation during a period of one, two or three years, then he must earn a double amount for an equal period when good times return, and this must not be considered as profit. He must also ignore the interest on the money invested in plant and in floating capital, as well as the expenses of selling agencies, taxes, insurance, etc., since all these items, like depreciation, will go on whether steel is made or not.
(11) During this era of low prices, the actual cost sheets and the annual reports may show no loss or even a margin of profit, and the average observer might conclude that these figures represent the proper selling price, a conclusion which would be entirely erroneous.
(12) It is the part of common sense for rival manufacturers to get together and agree to prevent cutthroat competition, by which not only ar.e all profits thrown away and all depreciation and interest charges ignored, but even operating costs encroached upon. A fair price under such an arrangement would include depreciation and interest as fundamental parts of the cost.
(13) Having made such an agreement for home trade it becomes good policy to ignore these items on competitive business for foreign deliveries, since they are both fixed quantities, not depending on the amount of steel produced, and the extra output caused by such foreign deliveries cheapens the cost to the manufacturer. Moreover, certain lines of foreign trade cannot be held if prices are varied with every local advance. Having secured, for instance, the business of a certain railway in Australia, it is evidently quite impossible